The government's official auditor, Comptroller and Auditor General (CAG), has mooted lower corporate taxes to stop many non-resident firms from misusing the Double Taxation Avoidance Agreements (DTAAs) on account of higher levies in India.

In a latest review report on direct taxes submitted to Parliament last week, CAG observed that in several countries with which India has a DTAA, tax rates range between 20% to 30% of net business income of companies while in India, the tax deduction at source ranges between 10% to 20% on gross receipts which would be much higher than the tax rates in other countries.

"We feel that a lower flat rate of tax applicable across streams of incomes irrespective of destinations would be a workable alternative ," the report said.

The Income Tax Act and DTAA together provide for a multitude of exemptions to the incomes arising to nonresident Indians which are currently unquantified in terms of revenue foregone, the report said while suggesting the need to phase out these exemptions.

The CAG study pointed out that by lowering levy, it would facilitate greater taxpayer compliance, reducing cost of doing business in India and also cutting down on instances of disputes.

"This lower rate, if incorporated in the Direct Tax Code (DTC), would thus override all other rates provided in the DTAA and would not require re-negotiations with other countries ," it said, urging the government to introduce and implement it along with the direct tax reforms from April 2012.

"We are of the opinion that a flat and lower tax rate applied to all payments regardless of their purpose or destination will be a more viable alternative," it added further.

Simplifying Tax Structure

tIn many countries with which India has a DTAA, tax rates range 20-30 % of net business income of firms. In India, TDS ranges between 10% and 20% on gross receipts. The latter would be much higher than the tax rates in other countries tThe CAG study said that by lowering levy, it would facilitate greater taxpayer compliance, reduce cost of doing business in India and also cut down on disputes.